Independent Connection Providers (ICPs) and licensed Independent Distribution Network Operators (IDNOs) can compete with Distribution Network Operators (DNOs) to complete some connection activities. Given the significant volume and value of this market, ofgem would expect that effective competition could develop with the right conditions.
The competition test
Following its introduction in 2000, the development of competition for electricity connections had been slow compared to gas. Because of this, ofgem developed measures in the Distribution Price Control Review 5 to improve the conditions for competition. Collectively these measures are referred to as the ‘competition test process’.
While competition had developed in some sections of the market, the results of the test showed that it had not taken hold in all areas.
Review of the market
In June 2014 ofgem opened their of the market for new connections to the electricity distribution network in response to continued concerns about whether competition in this market was effective.
Following a call for information, they published an update in October 2014 explaining that they had found issues in the market that could limit competition, a number of which relate to the DNOs’ role in the connections process. As such, they asked DNOs to explain how they would be addressing the issues identified.
Most recently in January 2015, ofgem published a consultation outlining their proposed solutions to the issues identified and the best way to implement them. They wanted to ensure DNOs place an enduring focus on adopting, harmonising and maintaining best practice behaviour in the connections market.
They intended to do this by introducing a new licence condition to require DNOs to reduce the extent to which competitors depend on them for essential services. Where the DNO is required to provide these services, it will need to do so on same basis to both its competitors and own connections business.
DNOs will collectively need to harmonise their arrangements for competition. This will be achieved through an enforceable Code of Practice (CoP) with which DNOs would have to comply.